Tax on Withdrawn Capital: Economic and fiscal effects
Introduction of a Tax on Withdrawn Capital would be a fundamental change of Ukraine’s corporate tax system. The proposed tax is an internationally unusual corporate tax based on profit distributions
rather than on the financial profits of companies. Although the effect on investment in the short run is likely to be limited, the new tax has potential to improve business climate in the long run. Fiscally, introduction of the new tax will lead to a significant annual fiscal shortfall of 1.2% to 1.5% of GDP in the first years following the tax reform, which should be fully compensated in the budget. Also, the potential for improvement of the business climate can only be realised if the tax reform is combined with a
substantial reform and improvement of the tax authority.